Impact of Micro Finance on Child Education – A Study of Select SHGs

Dr. Sreenivas Nampalli

Government Degree College, Wardhannapet, Warangal, Telangana State.
asksreenivas@gmail.com

Dr.V.V. Subramanya Sarma

Professor of Commerce and Business Management, Kakatiya University, Warangal.
drsarveni@gmail.com

Abstract : Human capital is an important tool to alleviate poverty in the developing countries. As education has become
costly to the people who live in rural places can be caught in poverty traps. The less educated are less able to raise their
living standards. Microfinance loans provide working capital to build businesses and mitigate irregularity in accessing
food, clothing, shelter and education. However, large differences occur when mothers obtain credit through Self-Help
Groups. This article focuses on the effects of particular features of microfinance have on education and examines how
microfinance impacts schooling of children. The study is sample study and the sample size is 500. The time period followed
in the study is single point of the time. The study followed a four year time period as a criterion for the selection of sample.
SHG members engaged in group activities at least for a period of four years' time are selected. The study is based on both
primary and secondary data. Primary data is collected through a structured schedule by holding interviews with various
respondents in local dialectic. Secondary data is collected by personal visits to the select village gram panchayats, mandal
offices, district office and libraries. Data were analyzed with the use of SPSS - descriptive and inferential statistical tools
such as percentages, Chi-square and Z-test. The key finding of the study is that the microfinance affects the household’s
behavior with respect to child education and has become an effective tool to fight with poverty.

Keywords: Micro Finance, SHG and Children Education.

Introduction: and products of very small amounts to the poor in rural,

Providing the poor with access to financial services is
one of the many ways to help increase their incomes,
employment levels and productivity to come out of the
risks. Access to microfinance usually leads to a higher
and better-diversified income situation, both at the
personal, and household level, though creation of more
jobs and higher quality jobs (i.e., creating an enabling
environment for improved labor conditions, enhanced
productivity, and improved skills base). These benefits
could bring a positive impact to raising the level of
education, improving health conditions and sanitation
facilities etc. Studies (Chowdhury et al., 2005, Kandker
1998; Sen & Grown 1987) find positive impacts of
microfinance programs on income, wealth, and on
health, and nutrition.
The term microfinance refers to the provision of
financial services to low income or economically and
socially poor people. These services include savings,
credit, insurance and money transfers. The task force set
up by the National Bank for Agriculture and Rural
Development (NABARD), defined microfinance as
“Provision of thrift, credit and other financial services
semi-urban and/or urban areas for enabling them to raise
their income levels and improve living standards”
(Report of the Task Force on Microfinance, 1999).
Microfinance addresses the problems faced by the
formal banking system in serving poor through some
innovative approaches. There has been a surge in interest
in microfinance in the recent past, particularly in the
context of reaching economically and socially poor
families in a more effective and sustainable way.
Microfinance emerged as an effective tool for poverty
alleviation. The availability of financial services allows
people to take advantage of opportunities and better
utilization of their resources. The poor, like the rest of
society, need financial products and services to build
assets, stabilize consumption and protect themselves
against risks. Thus, microfinance serves low-income
population who were excluded from the provision of
traditional financial services system and seeks to fill this
gap to alleviate poverty. Microfinance loans help low-
income population in many ways, by providing working
capital to build businesses, infusing credit to smooth cash
flows and mitigate irregularity in accessing food,
clothing, shelter and education and cushioning the

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Impact of Micro Finance on Child Education – A Study of Select SHGs
impact of shocks caused by adverse economic conditions
such as illness, theft and natural disasters.
Access to flexible, convenient, and affordable financial
services empowers and equips poor to make their own
choices and build their way out of poverty in a sustained
and self-determined way. Loans, savings and insurance
help smooth out income fluctuations and maintain
consumption levels even during lean periods. The
availability of financial services acts as buffer for sudden
emergencies, business risks, seasonal slumps, or events,
such as a flood or a death in the family that can push a
poor family into destitution (CGAP, 2003).
Micro Finance also affects educational outcomes for
children through a number of channels. This is
particularly important to consider if we are to start
understanding the long term and intergenerational
impacts one possibility is that micro finance, through the
loan and the expanded business activity, alleviates
liquidity constraints and leads to an expansion of school
attendance and a decrease is child labor ( Britta Augsburg
et.al.,2012). Agenor (2005) points out to the relevance of
human capital accumulation as a determinant of poverty
reduction in the long term. Educational attainment
significantly reduces the incidence of poverty.
The alleviation of poverty in the developing world is one
of the most difficult challenges faced by the development
community today. It has been proven that the
accumulation of human capital is an effective and
indispensable part of the long-term plan to attain this
goal, a fact underlined by the inclusion of universal
education in the 2015 Millennium Development Goals
put forth by the United Nations. In efforts to ameliorate
the welfare and the quality of life of the next generation
in developing countries human capital formation through
increased access to education in rural areas of developing
countries is and will continue to be an invaluable and
pivotal component. In recent years, microfinance has
presented and integrated into aid programs as an
effective way to address this widespread shortcoming of
impoverished nations (Evelyn Hytopoulos, 2011). In this
context, this paper is attempted to address the validity of
this claim that the use of micro finance loans by a
household is correlated with increased child education.
BVIMSR’s Journal of Management Research
Research Objective of the Study:
The study aims at finding the impact of micro finance on
child education taking some select self-help groups.
Research Methodology:
The research methodology adopted for the sample
selection, data collection and data analysis are explained
below:
Sampling Design and Sample Selection:
The study is sample study. It is based on Self Help
Groups. Warangal District in Telangana has been
selected as sample for the study based on a purposive
sampling. Warangal district has 50 mandals. Out of 50
mandals 5 mandals, which represent 10 per cent, are
randomly selected. The selected mandals are Dharma
Sagar, Station Ghanpur, Bhoopalpally, Hasanparthi and
Kesamudram. From each mandal, 4 villages are selected
and from each village 5 SHGs are selected. Further, from
each SHG 5 members are randomly selected. Thus 5
mandals, 100 SHGs and 500 members were selected for
the study.
Time Period of the Study:
The time period followed in the study is single point of
the time. The study followed a four year time period as a
criterion for the selection of sample. SHG members
engaged in group activities at least for a period of four
years' time are selected. The questionnaire is
administered to the respondents for six months period of
time to gather information on the sample at a single point
of time. In the study, Pre-SHG time period indicates the
situation of the respondents before they joined into the
SHG and Post-SHG time period indicates the situation
after they joined into the SHG.
Sources and Techniques of Data Collection:
The study is based on both primary and secondary data.
Primary data is information gathered from sample
respondents. Sources of secondary data are the office
records and files of the selected village grampanchayats,
mandal offices, district office, research journals, books,
newspapers, magazines, internet and other published
literature on micro finance. Primary data is collected
through a structured schedule by holding interviews with
various respondents in local dialectic. Secondary data is
collected by personal visits to the select village gram
panchayats, mandal offices, district office and libraries.
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 Impact of Micro Finance on Child Education – A Study of Select SHGs

Results and Discussion: On average, SHG members in Post-SHG period send

Child Education: more of their children (3.73) to school than the Pre-SHG
period (2.33). Overall, this difference is significant (z-
In a mature democracy, an informed citizenry, active test = 10.521, p<.01) between the number of children
citizenship and collective actions are critical for the attending school in Pre-SHG period and Post-SHG
functioning of civil society. They are made possible period. These outcomes provide evidence that
through a minimum level of formal education. membership of the SHG has a significant association
Developing economies now lay great importance on the with members’ children’s education.
concept of human capital. Education is an important
component of human capital and hence it forms an
important dimension for human development (APHDR, Table-1: Number of Children Attending School
2007). Number of Children Children Attending School
Overall development of children includes health and Pre-SHG Post-SHG
education. The global community as well as the national
government has accepted that health and education of None 194 (38.8) 115 (23)
children are not merely basic needs but fundamental One 172 (34.4) 137 (27.4)
rights. Articles 24 and 28 of the Convention on the Rights Two 106 (21.2) 164 (32.8)
of the Child (CRC) refer to health and education. Articles
Three 28 (5.6) 84 (16.8)
26, 27 and 18.3 outline provisions for a child’s well being
such as social security, adequate standard of living and Total 500 (100) 500 (100)
child-care (APHDR, 2007). Well being means that Average Number 2.33 3.73
children have the capabilities or the strengths to
of Children
undertake and perform activities or enter into successful
relationships that are appropriate for their age and level z-test 10.521
of development. Child schooling is important aspect of P value 0.000
child well-being (APHDR, 2007). Note: Figures in parentheses indicate percentage share to
Even in poor countries, education is not free. Regardless the respective total. Source: Field Survey
of family income, parents must pay school fees and buy
uniforms, text books and supplies. In the poor families,
children must work to help the family survive, so Education is a key determines individuals’ state of
attending school is a luxury. One of the first things poor human development and thus the number of children
people all over the world do with new income from micro attending school is directly related the human
enterprise is invest in their children education. The development context. The literacy rate of the children of
children of microfinance clients are more likely to go to respondents in Pre-SHG period is 61.2 per cent which
school and stay in school longer (CGAP, 2003). increases to 77 per cent in Post-SHG period. The literacy
rate in the Warangal district was 65.1 per cent in 2011. 74
Number of Children Attending School: per cent of boys and 72 per cent of girls of 12 years had
Table-1 reveals the number of children attending school, completed primary school, the highest in the Warangal
which is relevant to the human development context. The district for both boys and girls in 2011 (Human
paired z-test is used to analyze the data. It shows that Development in Telangana Report).
there are more children of SHG members (38.8 per cent)
out of school in the Pre-SHG period compared to Post-
SHG period there is 23 per cent child out of school.
Conversely, 16.8 per cent of the respondents have three
children in school in the Post-SHG period compared to
5.6 per cent of the respondents from the Pre-SHG period.

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Impact of Micro Finance on Child Education – A Study of Select SHGs

Number of Children Dropping out of School: Table-3: Reasons for Children Dropping out of
Table-2 Number of Children Dropping out of School School

Number of Children Pre-SHG Post-SHG Reason Pre-SHG Post-SHG

None 381 (76.2) 435 (87) School at distance 11 (9.2) 35 (53.9)

One 95 (19) 44 (8.8) Cannot afford 75 (63) 12 (18.5)

Two 20 (4) 15 (3) Work to support family 24 (20.1) 9 (13.8)

Three 4 (0.8) 6 (1.2) Parental neglect 9 (7.7) 9 (13.8)

Total 500 (100) 500 (100) Total 119 (100) 65 (100)

Average Number 1.29 1.18 Pearson Chi-square 53.7415

of Children P value 0.000

z-test 4.765 Note: Figures in parentheses indicate percentage share to

P value 0.000
Note: Figures in parentheses indicate percentage share to
the respective total. Source: Field Survey
Table-2 reveals the number of respondents’ children who
dropped out of school in Pre-SHG and Post-SHG
periods. The paired z-test is used to analyze the data. It
shows that 19 per cent of respondents had stopped one
child going to school in the Pre-SHG period compared to
8.8 per cent of respondents’ children in the Post-SHG
period. It also reveals that there are a higher percentage
of children of respondents in Post-SHG period than the
Pre-SHG period where no children of school age have
stopped going to school.
Likewise, on average, the number of children from Pre-
SHG period (1.29) is higher in incidence of school
dropout than the Post-SHG period (1.18). This difference
is significant (z-test = 4.765, p<.01) between children
dropping out of school of respondents’ in Pre-SHG and
Post-SHG period.
Reasons for Children Dropping out of School:
Dropping out of school or from the education system is
form of deprivation that these children face before they
finish high school education and for some this happens
even before they reach high school. This shows that SHG
members in Post-SHG period tend to have a better state
of human development as measured by the chosen
indicator of opportunity for education than respondents
in Pre-SHG period.
the respective total. Source: Field Survey
Further, table-3 shows the reasons for children dropping
out of school in Pre and Post-SHG periods. It shows that
the total number of respondents whose children are
dropping out of school in Pre-SHG period is 119 and in
Post-SHG period is 65. Out of this, most of the
respondents in Pre-SHG period (63 per cent) showing the
reason that they cannot afford education for their
children compared to Post-SHG period it is decreased to
18.5 per cent are indicating that the affordability of SHG
members has increased in Post-SHG period. Moreover,
20.1 per cent are dropping their children out of school to
send them to work to support the family in Pre-SHG
period and this is decreased to 13.8 per cent in Post-SHG
period. Further, in Post-SHG period, 53.9 per cent are
showing the reason of school at distance and 13.8 per
cent are accepted that they are neglecting the education
of their children. This change is significant (Chi2 =
53.7415, p<.01).
Type of School studying by the Children of
Respondents:
In the Indian context, the quality of schooling especially
public schooling is a more serious problem than access.
Private school administrators do their best to create the
best learning environment possible. English Medium
education is available only with private schools. Only in
one or two years the government has started initiative to
provide English medium education in government
schools. It is to be noted that there has been growing
demand for private schools in Andhra Pradesh,

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 Impact of Micro Finance on Child Education – A Study of Select SHGs

especially since the late 1980s, and more so in the 1990s. and monthly income levels have increased after joining
The general perception is that the quality of public (i.e. the SHGs. Such a trend of access to quality education to
government) schools is very poor. The growing the children of members of SHG is believed to contribute
awareness about the value of education with rising to the quality of human development.
expectations from parents about the quality of schooling, Average Monthly Expenditure on Education:
and the general feeling that public schools are not
offering good quality education has led to an increasing Table-5 shows respondents’ average monthly
demand for private schools. The failure of public schools expenditure on children education. The paired z-test is
in maintaining quality is attributed to many factors from used to analyze the data. It reveals that the average
teachers to infrastructure. Because parents are interested monthly school fee paid by the respondents is ` 657.30
in better quality, they prefer private schools if they can has increased in Post-SHG period compared to ` 39.80 in
afford it. If they cannot afford a private school some Pre-SHG period. This difference is significant (z-test =
parents prefer to keep send their children to work rather 32.491, p<.01). SHG members paid private monthly
than to a public school (APHDR, 2007 p.103). The poor tuition fee (` 478.60) is higher than the fee paid
quality of education often makes parents think that (`270.90) in Pre-SHG period. This difference is
attending school is a waste of time (APHDR, 2007, significant (z-test = 42.239, p<.01). Average annual
p.107). expenditure on textbooks and stationary has increased to
Rs.680.10 in Post-SHG period compared to ` 496.60 in
Table-4 Type of School studying Children of
Pre-SHG Period. This difference is significant (z-test
Respondents
=44.664, p<.01). Average annual expenditure on school
Type of School Pre-SHG Post-SHG uniforms also increased to ` 776.30 in Post-SHG period
(N=306) (N=385) from ` 440.58 in Pre-SHG period. This difference is
Private 95 (19) 262 (52.4) significant (z-test = 57.613, p<.01). About 27 per cent of
the total expenditure is spent on education during 2011-
Government 211 (42.2) 123 (24.6)
12 in Warangal district (Human Development in
Pearson Chi-square 154.984 Telangana Report).
P value 0.000 Table-5 Average Monthly Expenditure on Education
Note: Figures in parentheses indicate percentage share to (Amount in rupees)
the respective total. Source: Field Survey Expenditure Pre-SHG Post-SHG
School Fee (Mean) 39.80 657.30
In Pre-SHG 194 respondents told that none of their z-test 32.491
children attending school (Table-I). Hence, the children P value 0.000
of 306 (500-194) respondents are attending school in Private Tuition Fee 270.90 478.60
Pre-SHG period. In Post-SHG 115 respondents told that z-test 42.239
none of their children attending school (Table-I). Hence,
P value 0.000
the children of 385 (500-115) respondents are attending
Text Books & 496.60 680.10
school in Post-SHG period. It is identified that the
number of children studying private school has Stationary (Annual)
increased from 19 per cent to 52.4 per cent in the post- z-test 44.664
SHG period. On the other hand, the number of children P value 0.000
studying government school has declined from 42.2 per School Uniforms 440.58 776.30
cent to 24.6 per cent in the post-SHG period. In overall,
(Annual)
this difference is significant (Chi2 = 154.984, p<.01)
(Table-4). This has led to infer that SHG members are z-test 57.613
providing quality education to their children by sending P value 0.000
them to the private schools as their sources of income Source: Field Survey
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Impact of Micro Finance on Child Education – A Study of Select SHGs
The improvement in the education of children might be
attributed to different reasons. Increased awareness of
the importance of education and the problems arising out
of child labor might have resulted in the change of
preferences amongst the participants with respect to
providing education to their children. Further, women
SHGs have campaigned for better educational services in
their areas. The availability of better educational services
has led to a change in the potential for educational
attainment in their own villages.
Conclusion:
Microfinance is the provision of financial services to low
income people who traditionally lack access to banking
and related services. It plays a significant role in
improving the status of Self Help Group families and
their children in term of improving standard of living.
The most well-known and universal ways to generate
human capital is through education. Higher educational
attainment reflects a higher standard of living. The
analysis has shown that the microfinance effects the
educational attainment of children. The number of
children attending school has been increased and drop
outs have been decreased in the Post-SHG period. As the
households realized the importance of their children
education, the average monthly expenditure on child
education also increased after joining into SHGs. Hence,
microfinance affects the household’s behavior with
respect to child education and has become an effective
tool to fight with poverty.
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